A monopoly facing a demand curve lower than the average cost curve over wide ranges of output will likely do what?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aMake large economic profitsbGo out of businesscProduce where average costs are higher than marginal costsdNot maximize profits
Question
A monopoly facing a demand curve lower than the average cost curve over wide ranges of output will likely do what?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aMake large economic profitsbGo out of businesscProduce where average costs are higher than marginal costsdNot maximize profits
Solution 1
The correct answer is b) Go out of business.
Here's why:
A monopoly facing a demand curve lower than the average cost curve over wide ranges of output means that the price they can sell their product for is less than the cost of producing it.
In other words, they are making a loss on each unit of output they produce. If this situation persists over wide ranges of output, the monopoly will not be able to cover its costs and will likely go out of business.
This is because a firm can only sustain losses for so long before it runs out of money and has to shut down. Therefore, if a monopoly finds itself in this situation, it will likely go out of business unless it can find a way to reduce its costs or increase the price it can sell its product for.
Solution 2
The correct answer is b) Go out of business.
Here's why:
A monopoly facing a demand curve lower than the average cost curve over wide ranges of output means that the price that the monopoly can charge for its product is less than the average cost of producing that product.
In other words, the revenue that the monopoly is making from selling its product is less than the cost of producing that product. This situation is not sustainable in the long run because the monopoly is losing money on each unit of output it produces.
Therefore, unless the monopoly can find a way to significantly reduce its production costs or increase the price it charges for its product, it will likely go out of business.
Solution 3
The correct answer is b) Go out of business.
Here's why:
A monopoly facing a demand curve lower than the average cost curve over wide ranges of output means that the price that the monopoly can charge for its product is less than the average cost of producing that product.
In other words, the revenue that the monopoly is making from selling its product is less than the cost of producing that product. This situation is not sustainable in the long run because the monopoly is losing money on each unit of output it produces.
Therefore, unless the monopoly can find a way to significantly reduce its production costs or increase the price it charges for its product, it will likely go out of business.
Similar Questions
If a monopoly is producing where price is greater than average cost (and thus making a profit), more firms will enter the market.Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aTruebFalse
If a monopoly faces a demand curve that is downward-sloping, then marginal revenue will be which of the following?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aMust be less than pricebMust be equal to pricecMust be greater than pricedIs not related to the price
In the long run, a monopolist facing the same cost curves as a perfectly competitive firm will charge a ______________ price than the competitive market and produce a ______________ output.Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.alower; higherblower; lowerchigher; higherdhigher; lower
If a monopoly increased the price above the profit maximizing level, __________.Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.amarginal revenue would decreasebtotal revenue would decreaseYour answercprofits would increasedprofits would be unchanged
In the short run, perfectly competitive firms will produce where _____________?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aMarginal revenue is less than pricebPrice equals marginal costcPrice equals average costdAverage cost is a minimum
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